By Beth Pinsker
NEW YORK (Reuters) - Deep within the recesses of recent tax policy is a provision that will delay refunds for millions of taxpayers who file for two popular credits aimed at helping low-income workers.
The Internal Revenue Service last week reminded filers that no refunds would be available before Feb. 15 for returns claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). The changes stem from the Protecting Americans From Tax Hikes Act of 2015, known as PATH.
The IRS will open up e-filing for 2016 returns around Jan. 23, three days after the inauguration of Donald Trump as president.
Many of those who claim these credits tend to file their taxes early and count on the money coming well within the IRS's traditional 21-day refund period.
"It's not highly publicized, but it will impact a lot of the hardest working and will hit them early and the most difficult period," said Mark Steber, chief tax office at preparer Jackson Hewitt.
The reason for the delays is to prevent fraud and theft, which was particularly rampant among about 26 million returns claiming $65.6 billion of Earned Income Tax Credits for 2015.
The credits go to qualifying people whose deductions exceed their income. The average 2015 refund was $2,482, according to IRS data. The maximum allowed by law is $6,318 for a return claiming three or more children. The Additional Child Tax Credit can add up to an additional $3,000.
The IRS has said that it would process returns normally after Feb. 15, but tax preparers still have a lot of questions.
"Will all direct deposit returns go on Feb. 15? I don't know," said Jeffrey Schneider, an enrolled agent with SFS Tax & Accounting Services in Port St. Lucie, Florida. "I'm just making a presumption, but most of these filers don't have bank accounts, so they don't get direct deposit."
A dozen or so clients of Schneider's clients affected by these delays will be notified via his email newsletter, he said.
"If they get their W-2 early, and they're expecting $8,000 - they'll go nuts, I'll guarantee you," Schneider said.
Schneider and other tax preparers said they were worried that filers might seek advances from refund advance outfits, which charge high interest rates and fees.
Tax preparer Jackson Hewitt has an alternative, the Express Refund Advance, with no interest or fees, that will start early this year - on Dec. 15, with the option to pre-qualify before the end of November.
Jackson Hewitt arranges loans for qualifying clients through partner MetaBank for $200 to $1,300, and also helps them open a temporary deposit account with another partner bank for the refund. When the IRS direct-deposits the funds, the client repays the loan. If the refund falls short, Jackson Hewitt will take the loss.
"The client has told us that they don't want to go into debt, but they already earned this money and we're just getting it to them," Jackson Hewitt President David Prokupek said.
If taxpayers can just hold out a few weeks, however, they can get their checks directly and not deal with any middlemen.
"What people need to know is, first of all, it's industry-wide and the IRS says still to file. As soon as Feb. 15 hits, they will release the refund," Lisa Greene-Lewis, a CPA and TurboTax blog editor, said.